Some Thoughts On Social Entrepreneurism
I was thinking how I might tackle the topic of mission-driven businesses and social entrepreneurship and it reminded me how many people are still unfamiliar with the concept of a mission-driven business. There is so much great press on the terms of the day: green, eco friendly, fair trade, social entrepreneurism, and this seems like a good time to level set the terms.
In this post:
- Overview of terms
- Profit is goodness for everyone
- Challenges, Is it all a fad?
- Importance of measuring who/what you serve
- The great equalizer….taxes
First some background and definitions.
A social enterprise is a social mission driven organization which trade in goods or services for a social purpose. The need to deliver on financial, social and environmental performance targets is often referred to as having a triple bottom line. Profits from the business are used to support related or unrelated social aims. In the recent companies I’ve profiled, I highlight how the companies give back to their communities. Loosely put, social entrepreneurism is “companies doing good or giving back to their communities.” The more people these organizations are able to reach and engage, the more awareness of their cause they can build.
The term mission-driven business has just started to percolate and is regarded as a subset of social enterprises. The concept has been around for the better part of two decades but mostly from an academic or non-profit perspective. Micro-lending put it on the map. The success of people like Muhammad Yunus’ Grameen Bank which recently earned a Nobel Peace Prize the term is now getting a more mainstream audience. The bank, which has distributed almost 7 million micro-loans to women in the developing world, has been profitable for 27 of the past 30 years.
Profit Is Goodness…For Everyone
All social enterprises generate funding from the delivery of a product or service in exchange for money. In contrast to traditional non-profit structures dependent on yearly grants, social enterprises attempt to sustain themselves by delivering goods and services and supporting themselves with the revenue. Profit and the concept of making money seem to have negative connotations in most nonprofits I’ve worked with. Accepting grants is a much more comfortable model for them, but much harder to show accountability to the service they are providing.
Examples of mission driven ventures include Dr. Mani’s program. He is a heart surgeon who is using his internet marketing business to fund heart surgery for under-privileged children in India, and definitely making an impact. The FareStart Restaurant in downtown Seattle, takes proceeds from their lunch service and from Guest Chef Nights to fund their homeless job training and placement programs. Customers pay for these services, which (in some cases) along with grants support programs. FareStart has a non profit component which funds the culinary programs.
Challenges, Is This All A Fad?
For U.S.-based social entrepreneurs and mission-driven businesses, the challenge may be convincing customers to see the value in fair trade goods (like coffee), or to put up their own money for Kiva micro-loans. Kiva takes the concept of Grameen microlending and scales it further by marrying the technology of community profiles with paypal-style donations. While not a social enterprise, Kiva has a clear mission of connect people through lending for the sake of alleviating poverty. People who want to help a small business in a developing country can lend them money directly, and get it back to reinvest in other ventures. You can search through small business profiles, select the ones you want to support and receive alerts to their progress as the deposits hit your account. I am amazed by this site – I wish every non-profit were this accountable to creating such win-win situations.
At the end of the day, social entrepreneurism must solve a real customer need- or the product won’t sell. In some cases, the benefits are fairly easy to understand. People who buy fair-trade coffee are already in the market for a cup of coffee. The slight premium for the fair-trade version is small compared to the total price being paid, and some consumers are happy to take the opportunity to promote social equity. I find that the food businesses are easiest to target and write about, likely bc the cycle is so easy for people to understand:
Good Grain -> Happy Cow -> Premium Cheese -> My Plate
People are starting to vote with their dollars now, bc the product (food) is good; part of me wonders if that McDonalds documentary did some real damage. Living in Seattle, where wheatgrass is as prevalent as orange juice, it’s hard for me to gauge whether “The Center” shifted or if Indie is the new everyday thing.
By turning these positive social benefits into tangible products, fair trade vendors (like Stumptown Coffee Roasters in Portland) can sell a product that pleases the customer and pushes forward a social mission. Last year, Stumptown paid more than $50 a pound for reserve coffee beans — which are like reserve wine — from Panama. They sell beans that are roasted by hand in small batches and they are able to sell at a premium because they are also promoting social, environmental, and economic benefits of sustainable business.
People are not just buying coffee, but feel they are contributing to the well being of the workers, land and water – as they go off to their jobs, in their own small way, they are also participating in a movement to make the world a better place. It’s more than simply marketing, it’s actively participating in the virtuous cycle.
Measuring What/Who You Serve
Like with every business, it’s never just one metric that tells the story but several however, one of the traditional metrics used by big donors and foundation organizations to evaluate non-profits for grants is the overhead ratio. There are different ways of calculating the overhead ratio, but conceptually it is meant to indicate the percent of a organization’s funds that are applied to the organization’s goals. It is in some sense a measure of the efficiency with which a non-profit organization fulfills its mission. I know of no nonprofit whose program managers are accountable to or calculate this metric.
Simply concentrating on overhead ratio presents a rather lopsided view of measuring efficiency. The reason people focus on it is because donors want to think that their dollar going directly to the cause, not the office water heater. Who helps eradicate hunger by buying a water heater for the administration? What they really want to know is: the “goodness quotient” or impact of the organization in the community it is serving and often times non profits aren’t staffed to measure that, but only barely staffed to serve the cause.
Measuring impact requires an objective standard of performance – who doesn’t think they are doing a great job? And, how can one show accountability in a non biased way? People served. Threat reduced. It’s possible. If an organization is helping anything, there is something to measure.
Balanced scorecarding is as helpful here as it is in for profit organizations, and every organization should start to learn from their measures. The product or service being given should be straightforward for consumers to compare the value regardless of the organization being a nonprofit, mission driven or social enterprise business.
The Great Equalizer - Taxes Are For Everyone
Social entrepreneurism and/mission-driven businesses are also profit-driven businesses. And being profit-driven brings a whole set of advantages. Profit aligns you with customers rather than with grant makers. The focus is on delivering a great product, which means building trust, credibility, and quality. Profit enables the ability to hire and motivate great employees. Profit reminds you of your margins. Profit attracts investors and lenders, enabling the business to expand and — most importantly — fulfill mission side. It completes the virtuous cycle.
But there’s a subtle point here that is easy to miss. A social enterprise could easily be “non-profit” or “for-profit” in the technical sense. These categories are tax designations that matter to the IRS, but are otherwise not necessarily indicative of an organization’s structure or mission.
What makes social entrepreneurism attractive to me is that both the consumer and the environment benefit – profit makes people accountable. And that’s what it’s all about.
So to all of you: What are good examples of social entrepreneurism in your communities and how does it inspire you to live or work differently?